Chapter 13, Title 11, United States Code

Okay.

Um, it'd be a Chapter 13.

So I'm about $200,000 in unsecured debt.

Um, and that includes anything from payday loans to high-interest credit cards.

It's a real mess.

Um, you're, you're, you're really not bankrupt.

Um, and bankruptcy's really not gonna solve your problem because a Chapter 13 is 60 months of paying payments on these, and there's a formula that's gonna dictate that you pay a large sum of it, not all of it, but a large sum of it back.

And if you're gonna pay a large sum of it back in a Chapter 13 over 60 months, then you can also pay a deal, work a deal with these people and work it through.

And there's actually two plans that they use.

They use a chapter seven and a chapter 13.

And when you put them together, we call that a chapter 20.

Actually, you can't look up chapter 20 because it doesn't exist in the statute books.

They're going to liquidate their debt.

Creditors will get pro rata share of what's left over.

Chapter 13 is where they have a plan where they pay off their debt over a certain period of time that the judge approves.

And They work that plan and halfway through most of those Chapter 13 plans, they go ahead and file the Chapter 7 to wipe it all out.

All right.

So the tax resolution company that we were working with, after everything was said and done, they basically said, um, "Filing Chapter 13 would be in your best interest."

Yeah.

They, they-

Yep

... stole $10,000 of your money, so they're not credible.

A Chapter 13 will put you on a payment plan.

You probably can get a good tax attorney and just get on a payment plan.

and then there's a chapter five chapter sub chapter five chapter 11 bankruptcy which is typically called a small business reorganization bankruptcy um where there's a limit on the debtors secured and unsecured debt but no u.s trustee fees are required a standing trustee is appointed to help facilitate the process and only the debtor not the creditors can propose a plan Although that plan is subject to creditor voting and confirmation by the court.

And then there's a Chapter 13 bankruptcy, which is the consumer bankruptcy available for individuals with regular income that typically have high consumer debt.

Then we go to receiverships.

They're split into two broad types.

Generally speaking, there is a sub-Chapter 5 trustee, but it has a very limited role, mostly to facilitate.

It doesn't have the same powers as a Chapter 7 trustee or a regular Chapter 11 trustee if one were to be appointed.

And Chapter 13 is for individuals also with debt limits.

And there's a Chapter 13 trustee, but that person mostly is involved in monitoring confirmation of the plan and distributing funds that are paid through the plan.

And now there's a problem, and they can't pay on all these.

So they, they declare Chapter 13.

They get a lawyer to represent them, and the court can adjust, um, can adjust their debts, uh, but not to eliminate them.

It says right now in federal bankruptcy law that they cannot adjust the mortgage on your house, but they can adjust other debts.

Uh, you're--if, you know, if, if you are having trouble paying your bills, you know enough to go and hire a law-- And the lawyer might demand a little money up front, you know.

The lawyer has to be paid.

So you should stop paying your bills and accumulate at least a thousand dollars so you can go to a lawyer and start Chapter 13 bankruptcy proceedings.

Uh, but most--a lot of people don't have the ability to save a thousand dollars, uh, or the--you know, the--figure this out, and they won't call a lawyer.

Welcome back to Fresh Start with Jason Klein, founder of the Law Office of Jason Klein in Albuquerque, New Mexico.

Jason helps individuals and families across New Mexico find clarity and confidence through Chapter 7 and Chapter 13 bankruptcy solutions.

I'm Evan Mack, and today we're talking about tax refunds and how they're treated in bankruptcy and what people in New Mexico should understand before filing.

Jason, welcome back.

So strategic timing can sometimes help maximize the protection available.

Also, if we're in the tax time of the year and that refund is coming, we may just want to wait until that refund is received, spend it on approved items, so we'll make sure that it's protected that way because it's not owed anymore.

How are the tax refunds treated differently in Chapter 7 versus Chapter 13 cases?

So in a Chapter 7 case, the trustee can evaluate whether a refund is available for creditors if it's not fully protected by exemptions.

If you can pay something towards your debt based on this mathematical formula that's in the legal system, then they will not allow you to file Chapter 7.

They will put you into a Chapter 13 where you pay minimum ...

You pay a certain number of dollars, a certain ...

A- and say, say your 100,000 or 90,000, because student loans aren't in it, um, are repaid at a 40% rate.

The exact form of this relief will depend on what type of bankruptcy you qualify for.

Chapter 7 bankruptcy can discharge eligible debts entirely, but requires the filer to forfeit non-exempt assets and property, whereas with Chapter 13 bankruptcy, you won't have to forfeit any property, but you'll need to set up a repayment plan to pay back creditors, said LendingTree.

Why do people file for bankruptcy? In short, for relief.

as soon as you file for bankruptcy an automatic stay takes effect temporarily halting creditors from pursuing collection actions against you including lawsuits foreclosures and wage garnishment said investopedia And while it is generally a last resort, if you have exhausted all other alternatives, bankruptcy may be the only way to get the financial relief you're seeking, potentially even offering a fresh financial start after you do the requisite work said Experian.